Cherokee County seeks $53 million in lawsuit against Penn National

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September 12, 2008

Anonymous The Joplin Globe Fri Sep 12, 2008, 07:14 PM CDT

By Roger McKinney

rmckinney@joplinglobe.com

COLUMBUS, Kan. — The Cherokee County Commission is seeking a damage award of $53 million in a breach-of-contract lawsuit against Penn National Gaming.

Eric Schippers, Penn National’s vice president for public affairs, said the company won’t comment on the litigation.

Penn National announced Thursday that it was withdrawing from its plan to build and manage a $225 million casino and hotel in Cherokee County. The company initially was to invest $125 million in the state-owned casino, with future investment of $100 million in a hotel and other amenities. Schippers said competition from the $301 million Downstream Casino Resort, which opened this summer south of Penn National’s planned casino, made withdrawal a necessary business decision. The company also is seeking a refund of its $25 million privilege fee to the state.

The lawsuit was filed in Shawnee County District Court in Topeka late Thursday by David Cooper and Teresa Watson with the Topeka law firm Fisher, Patterson, Sayler & Smith. Cooper has served as the county’s attorney on casino matters, with the county’s costs for Cooper’s fees reimbursed by Penn National. That arrangement is no longer in place, and Cooper’s fees will come from the county budget.

“I don’t think they’ll pay us to sue them,” said Commissioner Pat Collins.

The lawsuit states that Penn National and Kansas Penn Gaming, the name under which the company was operating in Kansas, by withdrawing, did not fulfill requirements of a predevelopment agreement and amended predevelopment agreement with the county.

The lawsuit states that as a consequence of the company’s breach of contract, the county has suffered the following damages:

n Loss of gaming tax revenues to the county of at least $28.9 million over the life of the contract.

n Loss of property tax revenues to the county of $1.5 million per year, for a total of $22.5 million over the life of the contract.

n Loss of sales tax revenues to the county of at least $1.5 million over the life of the contract.

The amended predevelopment agreement between the county and Penn National required the company to spend $225 million on a casino and hotel, in phases “upon final approval of a management contract.”

The Kansas Lottery Commission approved a contract with Penn National for Cherokee County on May 5, and the Kansas Lottery Gaming Facility Review Board on Aug. 22 selected Penn National as the casino manager in the southeast gaming zone. The company withdrew its application as final approval by the Kansas Racing Commission was pending.

County commissioners, interviewed individually, said they didn’t specifically direct Cooper to file the lawsuit, but it had been an option they had discussed and they left the action to Cooper’s discretion.

“We hired him to make a judgment and he’s making it,” Collins said.

Commissioners met behind closed doors Monday with Cooper under the exception to the Kansas open-meeting law for discussion of privileged information between attorney and client. When the meeting was reopened to the public, Cooper said he had discussed with commissioners their options for Penn National, depending on what action the company took.

The state open-meeting law states that binding action may not be taken in closed-door sessions, but reaching a consensus behind closed doors is permitted.

“I think they’re foolish,” Collins said of Penn National’s decision to withdraw, saying he thought Penn National’s casino would have performed well.

He also said the county’s legal action is justified.

“They made us some promises,” Collins said. “We feel like they didn’t follow through.”

Commissioner Charlie Napier agreed.

“We put a long time in on this,” Napier said. “I hate the decision they gave us.”

Commissioners said they would watch county finances closely as the lawsuit proceeds.

“We’ll be responsible from this point for our own legal fees,” said Commissioner Rodney Edmondson, referring to county funds. He said commissioners would be looking at the financial picture in several ways.

“What are the potential financial burdens on the county?” Edmondson said. “How much can we afford and how much are we willing to spend?”

Collins added another consideration.

“We’ll evaluate the cost versus what the county has to gain,” he said.

Coming up

The Cherokee County Commission is expected to discuss the casino situation further at its regular Monday meeting.

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